The Winds of Change
Japan and short covering, physical buying optimism in China and the recommitment by SPDR to gold all drove gold higher today. Additionally, silver saw an unusually strong market day, up almost 4% as of the afternoon session.
The drop in Japanese GDP growth rate caught almost everyone by surprise and seemed the perfect precious metal antidote to China's stellar reports on growth. Lurking beneath the dull GDP numbers in Japan is an apparent loss of faith by the business/industry complex in the approach the central government is taking. So, there is now talk Japan might resort to more decisive economic intervention. China, riding high on their last reported numbers may also stimulate. Of course, this brings on the possibility of more inflation in the two Asian economies.
The amount of gold imported by China via Hong Kong in quarters 1 & 2 of 2013 has roughly matched import totals for all of 2012. China gold imports in 2013 may account for as much as 1/3 of total global purchasing, up from about 20% in 2012. This will offset declines in India, which vows to limit imports to 850 tons in order to keep more rupees patriated. Smugglers, however, will drive that tonnage up by at least 25%.
SPDR Gold Trust Fund, reversing two months of gold shedding, added 1.8 metric tons of the precious yellow metal.
An analyst with Deutsche Bank said on Monday that silver "could start to outperform gold" given recent data showing improving global industrial activity. Silver is widely used in electronics and a range of industrial applications, making prices sensitive to shifts in growth expectations.
About 50% of silver demand is inelastic, depending as it does on real use demand.
Wishing you as always good trading,
Gary S. Wagner
Last week we were faced with the decision as to whether or not to buy the breakout in gold and go long, or wait for dip before initiating our trade. Both choices have advantages as well as disadvantages. The primary caveat of buying the breakout is entering the market just before a profit taking pullback occurs. The advantage of course is to enter the market as momentum has built and ride the current upside wave. Buying the dip especially following a breakout contains the risk of missing the trade completely, if the market continues to rise and offers one no real entry point.
In this particular instance we opted to buy the breakout. Our assumption was that the probability that we would see a dip was fairly low. In hindsight buying the breakout was absolutely the proper call. Not only have we positioned ourselves in long positions, in both gold and silver, that are substantially lower than the current price, but in this case no dip in market price ever unfolded.
Today’s video will look at our current trade, talk about last week’s entry strategy, but most importantly begin to outline our exit strategy. We will look at current resistance levels in both gold and silver by which we will determine our price point gold for both gold and silver in terms of our exit.
Maintain Long Gold @ 1313 Stop Below 1300
Maintain Long Silver @ 20.48 Stop Below 1965
COT LINK See previous weeks in Historical Commitments of Traders Reports.
Click on chart below to view gallery
Gary S. Wagner - Executive Producer